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common stock c. Assume that the expected inflation premium remains at 3 percent but that the expected return on the market portfolio increases to 16

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common stock c. Assume that the expected inflation premium remains at 3 percent but that the expected return on the market portfolio increases to 16 percent eter mine the required rate of return on WPS common stock ST6. The yield to maturity on Xerox Corporation bonds maturing in 2017 is 8.40 Corporation The yield to maturity on a similar maturity U.S. governmenst Treasury bond is 7.55 percent. The yield to maturity on 90-day Treasury bills is 6.11 percent percent a. What is the maturity risk premium between the Treasury bill and the Xerox bond? b. What is the default risk premium on the Xerox bond? 8-10 Problems 1. You have estimated the following probability distributions of expected future returns for Stocks X and Y: Stock X Stock Y Probability 0.1 0.2 0.4 0.2 Return -1096 Return Probability 0.2 0.2 0.3 0.2 0.1 15 20 40 12 15 16 aWhat is the expected rate of return for Stock X? Stock Y? 6 What is the standard deviation of expected returns for Stock X? For Stock Y? c. Which stock would you consider to be riskier? Why? he return expected from Project No. 542 is 22 percent. The standard deviation of th returns is 11 percent. If returns from the project are normally distributed, wha the chance that the project will result in a rate of return above 33 percent? What is probability that the project will result in losses (negative rates of return)? with a standard deviation of 15 percent. The expected rate of return for the of Mustang Associates is 10 percent, with a standard deviation of 9 percent. 3. The expected rate of return for the stock of Cornhusker Enterprises is 20 per a. Which stock would you consider to be riskier? Why? b. If you knew that the beta coefficient of Cornhusker stock is 1.5 and the Mustang is 0.9, how would your answer to Part a change? ome that bave check answers provided at the end of the book

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